Governors’ Dillemas: Economic and Social Policy Trade-Offs in the Russian Regions
(Evidence from Four Case Studies)1
Thomas F. Remington
Irina Soboleva
Anton Sobolev
Mark Urnov
Through case studies of four regions, we examine the trade-offs between social and economic
policy at the regional level in Russia. All four regions studied seek to stimulate entrepreneurship while
preserving or expanding social welfare coverage. Regions differ in development strategies, some placing
greater emphasis on indigenous business development and others seeking to attract outside investment.
Variation in levels of democracy are unrelated to policy choices. All four regional governments consult
actively with local business associations while organized labor is weak.
The absence of effective
institutions to enforce commitments undermines regional capacity to make social policy an instrument for
long-term development.
The regime transition from communism to capitalism in Russia and elsewhere challenges policy
makers to devise new structures for social provision and economic management consistent with the
transition to a market economy. The conflict between those who seek to maintain some or all of the
comprehensive guarantees of employment, housing, education, health care, pension security and poverty
relief, and those who aim to reduce the socialist welfare state to a minimum set of fiscal commitments has
shaped politics both at the central level in Russia and at the regional level (Frye 2010; Cook 2007; Haggard
and Kaufman 2008; Gel'man, Ryzhenkov and Brie 2003; Zubarevich 2009). In Russia, regional governors
confront the challenge of stimulating growth by providing an attractive environment for capital investment
while at the same time ensuring social stability. Accordingly, they must resolve the trade-off between
reducing taxes and other burdens on the productive sector and maintaining the social benefits expected by
the population.
In this paper, we examine the strategies adopted by regional governments in Russia in the face of
this redistributive dilemma. Specifically, how do governors balance their social and economic policies?
For example, how do they reconcile their obligations in the spheres of education, health care,
unemployment benefits, housing and utilities rates, poverty relief,
and support for vulnerable and
dependent strata, with their desire to stimulate economic development? Do governors have a long-term
1
This research is part of a project entitled, "Silent Heroes: State and Middle Class in Contemporary
Russia," which is funded by the National Council for Eurasian and East European Research and the Higher
School of Economics in Moscow. We are grateful for their support.
2
strategy for regional development using measures of social policy to contribute to long-term growth?
Finally, what leads governors to give priority to one set of social and economic policies over another?
An extensive literature exists detailing economic, social and other policy demands on regional
governments in Russia (see, inter alia, Hanson and Bradshaw 2000; Hanson 2003; Ross 2002a, 2002b;
Remington 2011; Petrov and Titkov 2010). Comparatively few, however, address the way regional
decision-makers themselves view the trade-offs these challenges impose and the way they resolve them. In
this paper, we use case studies of four Russian regions to understand the strategies ruling elites pursue as
they manage the competing objectives of economic development and social protection. Our findings
suggest that regional governments regard social and economic policy measures as being in tension rather
than as reconcilable elements of a long-term plan for regional development.
Studies of the varieties of capitalism demonstrate that there is a tendency for political and
economic institutions in advanced industrial democracies to be complementary. Scholars distinguish the
"liberal market economy" model--characterized by highly competitive markets for labor and capital, limited
public provision of welfare and training, and competitive, majoritarian political institutions--from the
"coordinated market economy" with its emphasis on bargaining and coordination among business, labor
and government, reliance on consensual decision-making, and high level of income security (Hall and
Soskice 2001; Iversen 2005; Iversen and Soskice 2006, 2009; Iversen and Stephens 2008). Our case studies
suggest that, despite some differences in emphasis, all four regional governments are pursuing hybrid
strategies of regional development. These combine some features of the old socialist statism (such as the
administratively determined rates for services by state utilities providers, the authoritarian patterns of
decision-making, and the universalistic and regressive nature of social entitlements) with elements of a
somewhat skewed corporatism by which business interests are given access to policy making. There are
elements as well of a liberal market-oriented economic policy of low taxes and low redistribution (as seen
in the push to commercialize and privatize public services). This hybrid model of politics and economics
allows regions to avoid radical and potentially destabilizing shifts away from the universal social welfare
system of the Soviet regime while slowly introducing elements of market competition for labor and social
services. At the same time such a strategy is costly and preserves ample opportunities for rent-extraction
3
and corruption. It also perpetuates tendencies toward paternalism and dependency on the part of the public,
including business.
Regional governments in Russia, like the national government, face fundamental choices in their
strategies for regional development. Creating a climate favorable for business investment comes at the
expense of resources needed for other purposes, particularly for redistribution in favor of dependent strata
of the population or for the subsidies and credit guarantees that enable local firms to weather difficult
economic conditions. The redistributive dilemma is therefore not just between support for the productive
sector and support for the dependent strata, it imposes choices over the relative priority of different sectors
of the society--the poor and vulnerable; the business sector; and the public sector. The fact that regions
have managed to improve compensation for public sector employees indicates that the redistributive
choices faced by governors are often resolved in favor not of the poor nor of business, but of the public
sector. Low tax collections, inefficient public utilities companies, and weak financial markets all make
these redistributive conflicts more acute than would be the case if tax receipts were more robust (as would
occur if employers reported and paid taxes on a higher proportion of their actual earnings), if utilities
providers were more efficient, and if financial markets could handle bond issues for infrastructure
development bringing long-term returns. The short time horizons of economic agents reinforce these
redistributive dilemmas.
Alleviating the redistributive dilemma between social and economic policy goals by inducing
faster economic growth might be possible if institutions for coordination within the business and labor
sectors were more effective and both could reach enforceable agreements with government. Then actors
might be willing to pool the costs and gains from joint efforts to invest in infrastructure development,
improved labor market regulation, training programs that would match the skills of workers to the demands
of new productive technologies, and financing for region-wide development plans. At present, however, at
least on the strength of these four case studies, regional governments do not see such long-term institutional
reform as a high priority.